Responses to Incentives in Public Expenditure Programs
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Workers' Compensation (WC) is a large social insurance program that provides medical care and cash benefits to workers injured on the job. Each WC claim involves several different parties--the injured worker, employer, doctor, insurer, and, if applicable, a third-party case manager. To date, the literature has primarily focused on worker responses to incentives, and estimates of worker responsiveness to benefit levels in the 1980s are widely cited. Little is known about how other parties respond to incentives or how worker responsiveness may have changed after the WC policy reforms of the 1990s. In response to rising employer costs, many states have passed policy reforms to reduce these costs. In this dissertation, I examine how different actors respond to changing incentives in WC, with a focus on the policy reforms of the 1990s. In Chapter 2, I complement the WC incidence literature by updating the estimated elasticity of WC receipt with respect to benefits by using data from the 1990s and reconciling the differences between previously published estimates. I find much lower levels of worker responsiveness, even after controlling for the policies that made it more difficult for workplace injuries to qualify for WC benefits and employers shifted to self-insurance. I also find that increased prevalence of self-insurance reduces the probability a worker will claim WC benefits. In Chapter 3, I focus on a reform enacted by the state of Ohio that changed incentives to third-party case managers for getting injured workers back to work. During the mid-1990s, the Ohio state insurer contracted out case management services, and the contracts incorporated a large bonus incentive payment intended to reward contractors for reducing claim duration. The bonus payment is essentially a decreasing function of average days away from work, excluding claims extending longer than 15 months. Therefore, duration is predicted to decrease for minor claims and increase for some severe claims so that the claimants remain out of work longer than 15 months and are excluded from the bonus payment calculation. I find contractor responses are consistent with the expected heterogeneous responses of a profit-maximizing firm but inconsistent with the state's intentions.